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What will the Labor government do in Australia?

  • Following Labor’s election win, EIU expects incremental changes to Australia’s policy mix, rather than a series of “big bang” reforms
  • Climate change policy will be an area of change and although we expect targets to be stiffened, the green transition in Australia will still lag behind its international peers
  • Relations with China will not be “reset”, as security ties with the US will be prioritised, but the risk of further deterioration has reduced

The centre-left Labor Party won the Australian general election on May 21st and has returned to government for the first time since 2013. While some seats are still too close to call, it seems likely that the party will have a minimal majority in the House of Representatives (the lower house), following a collapse in the number of seats held by the former Liberal-National centre-right coalition. However, even if Labor has to rely on the support of the Greens and/or several independent members, it is clear that it has a mandate from the Australian people for many of its election pledges. In his first press conference as prime minister on May 23rd, Anthony Albanese outlined three priorities for his government: the creation of an independent anti-corruption commission; constitutional recognition for indigenous Australians; and a summit on jobs.

Anti-corruption efforts could have an impact on business

On the first of these, the Liberal-National coalition had proposed, under pressure, a Commonwealth Integrity Commission (CIC), but plans to legislate for it were scrapped after it was widely criticised as being insufficiently powerful. Labor made the launch of a new entity a centrepiece of its campaign and, given that the Greens and a number of the newly elected “teal” independents also support the policy, it should be legislated in time for Labor’s self‑imposed deadline of end‑2022, bolstering Mr Albanese’s pledge to clean up politics and the public sector.

We expect the new government’s body to allow public hearings into allegations of corruption in the state sector; to act on anonymous tips from members of the public; and to offer protections to whistleblowers. These are three areas where the CIC was deemed to be insufficiently powerful. One likely consequence will be greater scrutiny of political donations and the role of lobbyists, especially where these are former politicians.

A Voice for indigenous Australians?

Labor will also look to hold a referendum on the establishment of an Indigenous Voice to Parliament. This would involve the creation of a permanent indigenous advisory body to the federal parliament and an amendment to the constitution to make its presence permanent. Negotiations on the issue are likely to take several years. Mr Albanese has already said that he would prefer to receive the support of the coalition before putting the issue to a referendum, but even moderate senior Liberals, such as Malcolm Turnbull, have been lukewarm on it in recent years. The Greens, who are strongly in favour of greater recognition of the abuses endured and disadvantaged faced by indigenous groups, would prefer a sort of truth and reconciliation commission to be established first to hear evidence of wrongdoing against indigenous peoples, and then a Voice legislated afterwards.

It is possible that a referendum could be held in 2023 or 2024, but there remains major work to be done on the sequence of events. Labor will only proceed with a referendum if there is clear public support for proposals as they are developed, given the hurdles for achieving constitutional change. In the immediate term, expect more formalised consultations with indigenous groups on policy, and heightened expectations of corporate action and engagement with indigenous communities.

New legislation on tackling climate change, but Australia will still lag behind international peers

We also expect to see new legislation to combat climate change, one of the dominating themes of the election. Labor has pledged to target a steeper cut in carbon dioxide emissions than that of the coalition, of 43% from 2005 levels by 2030, from 26% at present, while the Greens and teal independents back a 75% reduction (that required for compatibility with the 1.5‑degree goal of the Paris Agreement). Of all 19 seats so far confirmed to have changed hands at the election, nine were to the Greens and teals.

However, the mechanism is more important than the target and here Labor has been deliberately unambitious, perhaps worried about the negative reaction it received when focusing on climate change at the 2019 and 2013 elections. It has proposed a A$20bn (US$14.2bn) fund to expand the electricity network, lower taxes on electric vehicles, and will look to use a baseline-and-credit system, giving most of the incentive power of an emissions trading scheme, but at a lower cost to business. While Labor needs to take action if it wants to avoid a backlash at the next election, the language coming from the new administration suggests that the green transition in Australia will still be gradual compared with some other advanced economies.

No reset with China, while doubling down on existing alliances

In the international sphere, the change of government has opened up a small window of opportunity to reduce political tensions with China. However, although the coalition’s election strategy of painting Mr Albanese as soft on China largely failed, it would be a brave move for his government to be seen as making a first move here. Similarly, concessions from China, either on trade tariffs or its treatment of Australian nationals held in China on espionage charges, are unlikely. The scope for further deterioration in relations has been reduced by Labor’s election, but we still view the new government as backing trade diversification away from China as a long‑term goal.

More broadly, Labor administration will seek to maintain and develop Australia’s traditional and new alliances. Labor has expressed its full backing for the AUKUS security deal with the US and UK, and one of Mr Albanese’s first tasks since becoming prime minister has been to attend the Quad leaders’ summit in Japan. One area of probable adjustment will be in Australia’s relations with its Pacific island neighbours, with China’s recent security agreement with the Solomon Islands having featured in the election campaign. We expect a step‑up in the development budget for Pacific nations and the change in language on climate change to help with diplomacy, but there is realistically no path to stopping China from further developing its influence in the region.

No major economic policy shifts, barring some fiscal realignment

There is unlikely to be a major shift in economic policy in the coming years. The two parties offered very similar visions for the economy on the campaign trail, a fact emphasised by Labor’s pledge to honour the income tax cuts scheduled for 2024 that had already been legislated by the coalition. Although the new treasurer, Jim Chalmers, has spoken of a careful review of spending priorities, there is little appetite among the electorate for the sort of higher taxes required to narrow the fiscal deficit (especially at a time of high inflation), nor will Labor want to risk being seen as fiscally irresponsible by pushing the deficit out further.

There will be an ideological shift towards pushing government spending towards low‑income families, childcare and aged care and away from large corporations, but this will be largely symbolic. Labor is supportive of the OECD’s attempt to ensure that multinational corporations pay a minimum tax rate of 15% and impose stricter limits on debt-related deductions.

Liberal move to the right could usher in long period of Labor rule

At present, it is uncertain what sort of political opposition the Labor government will face. The former prime minister, Scott Morrison, resigned immediately after his election defeat was confirmed. The teal independents have also removed several high‑profile moderate Liberals, including the former treasurer, Josh Frydenberg. This means that the front-runner to lead the Liberal party is a former defence minister, Peter Dutton, a conservative.

The dissonance between Mr Dutton’s own politics and where the electorate appears to have moved means that Labor could be set for an extended period of governance, especially following the emergence of a centrist, independent vote. It would probably take a sharp economic downturn—not the EIU’s core forecast—or the re‑emergence of the internal divisions that helped to undo the last Labor administration in 2010‑13 to revive support for the Liberals.

More award-winning insights on Australia’s economic and political situation can be found in EIU Viewpoint, our new analysis service. EIU Viewpoint provides unmatched forecasts, analysis and data for nearly 200 countries and six key industries, helping organisations identify prospective opportunities and potential risks.